Colombia’s thriving economy and strategic position in Latin America make it a compelling choice for expansion. Payroll management, however, involves navigating complex tax and labor laws. Gloroots helps you manage these effectively. Employers hiring in Colombia or through an Employer of Record (EOR) must master these regulations for successful payroll operations.

How is payroll calculated in Colombia?

Calculating payroll in Colombia involves several key components, including:

• Names and basic details of employees
• Hours worked
• Payroll deductions
• Minimum wages
• Taxes
• Employee benefits
• Gross pay
• Net pay

Setting up payroll in Colombia requires strict adherence to the country’s labor laws. Managed by the HR or accounting department, payroll processes include determining pay, disbursing payments, and tracking working hours. Companies must ensure compliance with all Colombian payroll regulations to guarantee accurate and lawful payroll management

Discover the latest insights on Global Payroll Trends for 2024.

How to set up payroll in Colombia

To set up payroll in Colombia, follow these steps:

• Gather Employee Information: Collect all necessary employee details, including personal information (name, date of birth, postal address, etc.), passport, bank statements, and proof of health insurance coverage.
• Establish a Legal Entity: Create a legal entity to process payroll in Colombia. Common forms include Limited Liability Companies (LTDA), Corporations (SA), Simplified Stock Companies (SAS), and Business Banking.
• Register Your Business: Register your business with the Commercial Court to validate your business name.
• Obtain a Business ID: Register at the Chamber of Commerce to get a business ID number.
• Register for Tax and Labor Requirements: Obtain a national tax number, and register your company name, labor and tax registration, severance fund, Family Compensation Fund, and The Labor Risks Administrator.
• Register for VAT and Social Security: Register for VAT, pension, and health insurance through the Tax Authority. For social security registration, affiliate your company and employees with Colpensiones or a private fund and submit the necessary form as per Decree 2390 of 2010. Submit this form electronically to the Colombian Family Institute (ICBF), Governmental Learning Service (SENA), and the Family Compensation Fund.
• Open a Bank Account: Open a Colombian bank account to handle payroll-related payments. Ensure you have court and registration information, including a statistical number and proof of health insurance registration, for approval.
• Determine Payroll Amounts: Calculate the payroll amounts for each employee.
• Authorize Payroll Structure and Cycle: Establish and authorize the payroll structure and cycle for your company.

By following these steps, you can ensure that your payroll setup in Colombia is compliant with local laws and regulations.

Payroll Process in Colombia

Managing payroll in Colombia involves three main phases: pre-payroll, payroll calculations, and post-payroll. It requires meticulous record-keeping of employee hours and staying updated with legislative changes to ensure compliance.

Pre-Payroll Phase

During the pre-payroll period, focus on gathering documentation, confirming HR policies, and ensuring your business is ready to pay employees while staying compliant.

Setting Up the Organization

Establish policies for leave, pay frequency, and attendance to ensure smooth payroll operations.

• Business Profile: Register your company with a business number associated with your PAN and TAN for tax forms and payslips.
• Work Location: Set policies for each workplace, accounting for local or regional requirements.
• Leave Policy: Define clear leave policies. Employees in Colombia are entitled to 15 paid days off per year after one year of service, plus 18 public holidays.
• Attendance: Document timesheets, sick leave notices, or time-off requests. Use biometric devices to track hours worked.
• Statutory Components: Include income tax deductions, social insurance contributions, benefits, and other legal requirements in payroll components.
• Salary Components: Ensure compensation packages comply with Colombian labor laws, including minimum wage. Flexible benefits plans can be offered based on company policy.
• Pay Schedule: Typically, payroll is processed monthly, with payments on the last day of the month. Some companies pay bi-weekly. A 13th-month salary is required, with the first half paid by June 15th and the second half by December 20th.
• Employee Information: Collect employee details such as date of joining, designation, department, job titles, and preferred payment method.

Payroll Calculation Phase

This phase involves calculating each employee's paycheck based on data from the pre-payroll phase, considering deductions, withholdings, and taxes. Partnering with a payroll provider in Colombia with an automated system can streamline this process.

Post-Payroll Phase

• Salary Payments: After calculating payroll, send bank advice to your corporate bank for salary disbursements or use a direct deposit system to pay employees.
• Payroll Accounting: Balance accounts and track the total expenditure of payroll funds after payments.
• Payroll Reporting and Compliance: Ensure all deductions, such as social security contributions, are remitted to the appropriate government agencies by their due dates.

Payroll Cycle

In Colombia, the payroll cycle is typically monthly, with payments issued on the last working day of the month. However, some industries opt for a bi-weekly schedule, disbursing payments on the 15th and the last working day.

Payroll Management 

Effective payroll management involves maintaining accurate financial records, paying employees, generating payslips, and adhering to labor laws. A payroll provider in Colombia, such as Gloroots, can automate payroll processes to ensure timely employee payments and automatic deductions, such as social security contributions and remittances to relevant government agencies. This ensures full compliance with legal requirements.

Payroll Compliance

Managing payroll also means ensuring compliance with labor laws and benefits regulations, including taxes, minimum wage, leave entitlements, and other legal requirements. By partnering with a payroll company like Gloroots, you can ensure that all compliance aspects are handled, keeping your business 100% aligned with both domestic and international laws.

Explore our  A Complete Guide to Payroll Management | Gloroots for in-depth insights

Payroll Components

Partnering with a payroll outsourcing provider in Colombia ensures that all payroll components are efficiently managed.

Compensation

The Colombian government sets the minimum wage annually, with the 2024 rate established at COP 1,300,000 (approximately USD 338) per month. This figure is adjusted yearly based on the Consumer Price Index (IPC).

• Salaries in Colombia can follow either the ordinary or integrated salary schemes.
• Under the ordinary salary scheme, employees receive several mandatory benefits in addition to their monthly pay:
• Severance Pay: Equivalent to 30 days of salary per year of service, prorated for partial years.
• Interest on Severance: 12% of the severance payment per year, prorated for partial years.
• June and December Bonuses: Each equivalent to 15 days' salary, paid biannually in proportion to the time worked during the respective half-year.
• Vacation: 15 working days for each year of service.
• Work Clothes: Provided three times a year (April, August, December) for employees earning less than twice the minimum wage.
• Transportation or Connectivity Allowance: COP 162,000 (approximately USD 42) for employees earning less than twice the minimum wage.
• The ordinary salary scheme is mandatory for salaries below 13 times the monthly minimum wage (COP 16,900,000 or approximately USD 4,390 for 2024). Salaries equal to or above this threshold can use the integrated salary scheme, which includes most legal and social benefits except for vacations, where employees are still entitled to 15 business days off per year.

Working Hours

Employees in Colombia are allowed to work up to 47 hours per week. They are entitled to at least one paid day off every six days, typically on Sundays. According to the Colombian Labor Code, employees can distribute their 47-hour work week over five days, allowing them to enjoy Saturdays as an additional day of rest.

Overtime 

Employees in Colombia cannot be required to work more than 2 hours of overtime per day or exceed 12 hours of overtime in a week. The standard workday runs from 6:00 am to 9:00 pm, with daytime overtime compensated at an additional 25% of the regular hourly wage. Night shifts, defined from 9:00 pm to 6:00 am, receive a 35% premium on the ordinary rate, and night overtime is compensated at an additional 75%.

Employers must obtain a special permit from the Ministry of Labor to authorize overtime. According to Resolution 3031 of August 2023, these permits must be updated regularly, not exceeding a validity of 2 years. Failure to do so may result in sanctions.

Certain employees, such as those in managerial, supervisory, or security roles, and those performing intermittent duties while remaining on-site, are exempt from the regulations governing maximum work hours and overtime.

Payroll Taxes

Social Security

Employer contributions average 30% of the employee’s contributory base income, varying based on job risk. Employers paying income tax are exempt from certain social security contributions for employees earning over 10 times the minimum wage, reducing their contribution to 17%.

Sick Leave

Employees are entitled to paid sick leave for the first two days at two-thirds of their regular pay, with a doctor's note.

Parental Leave

Maternity leave is 18 weeks at full pay, reimbursed by social security. Law 2114 of 2021 extends paternity leave to two weeks, also reimbursed by social security. Parents can share the last six weeks of maternity leave if they provide a written plan to the employer 30 days before childbirth.

Other Leave

Employees receive five days of leave for the death of an immediate family member, marriage, and one day for voting in elections. Workers can also take leave to help bury their co-workers.

Public Holidays

Colombia observes 18 national public holidays annually.

Find the Best Colombian Talent for Your Business Today

To find the best Colombian talent, focus on areas where Colombia excels, such as data analysis, software development, and digital marketing. Gloroots simplifies hiring and payroll management by ensuring compliance with local labor laws and offering comprehensive payroll services. Our expertise in risk mitigation, streamlined onboarding, and payroll integration allows you to focus on business growth while we manage the complexities of payroll and talent acquisition seamlessly.